GST comes in way of government’s plan to scrap old vehicles

The Voluntary Vehicle Fleet Modernisation Programme (V-VMP) is back on the drawing board as the government reviews its options to reward those who agree to junk their old vehicles .Sharmistha Mukherjee&Rajat Arora | ET Bureau | September 19, 2016, 08:27 IST

NEW DELHI: The government’s ambitious programme to get old, polluting vehicles off the road has hit an unexpected speed bump: Goods and Services Tax.

The Voluntary Vehicle Fleet Modernisation Programme (V-VMP) is back on the drawing board as the government reviews its options to reward those who agree to junk their old vehicles to buy new, lesspolluting, ones.The earlier plan was to levy lower excise tax on new vehicles bought under V-VMP. But the new tax system that is expected take effect next fiscal year will amalgamate excise tax into the overarching indirect tax called GST.

The finance ministry doesn’t favour giving incentives under GST and has directed the roads transport ministry to examine other methods to encourage people to scrap old vehicles.

“I had recently met the finance minister (Arun Jaitley) to discuss the proposed policy. He is in favour of providing financial benefits to people for scrapping vehicles,” said Road Transport & Highways Minister Nitin Gadkari. “(But) the minister is not in favour of excise duty exemption in the wake of the upcoming GST law, as the GST council will have to clear it.

He is of the view that we could give financial incentives under some special scheme. We are reworking the proposal as per the FM’s suggestions and will then give it to the CoS (Committee of Secretaries).”

The roads ministry is working on a new proposal, which will shortly be put up before the committee comprising secretaries of the roads, steel, finance, heavy industries and environment ministries, a senior official in the roads ministry said.

The draft policy currently proposes slashing excise duty by half on the purchase of a new vehicle after scrapping an old one, fair value for the scrap and special discounts from automobile manufacturers.

The incentives are expected to reduce the cost of a new vehicle for the buyer by 8-12%. Further, to encourage commuters to shift to new and high capacity buses, which will help decongest roads, the policy also recommends complete excise exemption for state transport buses.

“The principles remain the same. We will incentivise the scheme for the initial 2-3 years, particularly to get off roads old polluting trucks and buses,” said the official, who spoke on condition of anonymity. The finance ministry has also suggested that the vehicle modernisation programme be made mandatory instead of keeping it voluntary for all heavy vehicles which are more than 15 years old.

As per the current voluntary vehicle modernisation scheme, vehicles bought prior to March 31, 2005, or those below BS IV emission standards, would be eligible for incentives if those were scrapped and replaced by new ones. According to government estimates, the V-VMP programme may take 28 million polluting vehicles off the road. It would enable generation of Rs 11,500 crore worth of steel scrap every year.